Treasury estimates cost of setting up independent Scotland at £1.5bn

Salmon Trout Marcus Österberg

The Treasury has estimated that Scottish voters would face a £1.5bn bill for setting up an independent Scottish state, prompting a furious row with the first minister, Alex Salmond.

Independent experts estimate that establishing a new country's institutions can cost up to 1% of its GDP, according to a Treasury report on the costs of independence to be published on Wednesday. Based on Scotland's GDP, that led to a "favourable estimate" of £1.5bn, the report said.

With Scotland facing a bill of about £750m just to create a new tax regime and £400m for computers and IT for welfare, the Treasury said Salmond's government had failed to set out to voters what an independent Scotland's startup and running costs would be.

A new Scottish state would need to set up a security and intelligence agency, a competition and markets authority, an integrated Scottish defence force headquarters, a passport office and a DVLA, it said.

Danny Alexander, the chief secretary to the Treasury, said Scottish ministers had given no costs for any of these new bodies. "The Scottish government is trying to leave the UK, but it won't tell anyone how much the set-up surcharge is for an independent Scotland," he said.

"As part of the UK, Scotland gains from a strong and stable tax and benefits system and our comprehensive analysis, published this week, sets out how much better off Scottish taxpayers are; that's why we're better off together."

Salmond vigorously challenged the Treasury's figures after the Scottish government leaked a Treasury presentation slide, summarising some of the potential costs, to Sunday newspapers. He said it contained "deeply flawed and deeply misleading" figures.

Salmond was scathing about one equation that examined the Scottish government's estimate that there were about 180 new agencies and public bodies an independent Scotland would need to create or transfer from the UK.

Based on estimates from the Institute for Government and the London School of Economics that setting up a new policy department could cost £15m, the slide said that "could see Scottish taxpayers fork out £2.7bn".

Salmond said the claim was ridiculous, because his government had never predicted they would need 180 new departments of that size. Many of the 180 public bodies were quite small or already existed, such as Scottish Water, the NHS boards and the Cairngorms national park.

The Scottish government also claims that after independence it will be able to share some agencies, such as the DVLA and university research councils, with the UK – a position London has rejected out of hand.

"The Treasury are either guilty of a horrendous blunder or it is a deliberate and deeply dishonest attempt to deceive. Either way, it leaves the Treasury's analysis without a shred of credibility and either way they should withdraw this misleading claim," Salmond said.

At a media briefing on Friday, before the slide was leaked, Treasury officials had said that the £2.7bn figure was being presented as an illustration of some possible costs that could be involved, but was not the figure the UK government was working to.

Wednesday's report will focus on the £1.5bn estimate, sources said, but they admitted the slide – which did not include the £1.5bn figure - had been poorly phrased. Treasury officials also said the costs would be spread over about five years, and not paid all at once.

Powered by article was written by Severin Carrell, Scotland correspondent, for The Guardian on Monday 26th May 2014 07.00 Europe/London © Guardian News and Media Limited 2010